Vol 17 (2020) - Issue 5

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Interpretation of a Third Party Mortgage under the IBC: The Need to Revisit the Jaypee Verdict

Synopsis
The Insolvency and Bankruptcy Code, 2016 ('IBC’ or 'Code’) is comprehensive legislation to provide for timebound resolution of corporate entities facing financial distress. The objective of the Code is to achieve maximisation of the value of assets and availability of credit in the market. As the Code is at the nascent stage, its interpretation has been surrounded by various naive legal ambiguities and issues. Though the judiciary has surmounted such novel challenges through various measures, the outcome of the judgments in a few cases have invited mixed reactions both from the market as well as the legislature. For instance, on the recommendation of the IBBI working report, the law laid down by the Supreme Court ('SC’) in the Ramakrishnan case, which disregarded the applicability of a moratorium for personal guarantors to the corporate debtor, was incorporated into the Code through an amendment. However, the verdict of the National Company Law Appellate Tribunal ('NCLAT’) in the matter of Essar Steel dictating equal treatment of both the financial and operational creditors was almost overruled through legislative intervention.